The Dirty Secret Behind Wireless

First it was Metricom, shutting down its high-speed Ricochet wireless service, and now it’s MobileStar, pulling its 802.11 wireless networks out of hotels, airports and even Starbucks. And if industry insiders and Wall Street analysts are on target, GoAmerica and OmniSky may soon follow suit. So much for the wireless future we’ve all been promised.

The problem lies with economics. As Clayton Christensen says in his book, The Innovator’s Dilemma, wireless is a disruptive technology and "…disruptive technologies rarely make sense" from a business investment perspective. Therefore, it’s small startup firms that typically enter these markets, companies such as Metricom, GoAmerica and OmniSky. Christensen states that these small entrant firms "build the emerging markets for disruptive technologies [because]…it simply does not make sense for the established leaders to do [so]." Unfortunately, for companies such as Metricom, when the cash is gone, so is the wireless dream.

It’s your typical "chicken-or-the-egg" syndrome.

Bottom line, there are simply not enough early adopters of these cutting-edge wireless services to generate the revenue needed to keep them operating, let alone build them up. It reminds me of back in the pre-Internet days when AT&T tried to create a nationwide computer network it called Net1000. The concept was simple: install Unix boxes in cities across the United States (1,000 boxes to be exact, hence the name Net1000) and sell the service to companies. In fact, we looked at it back in the early 1980s when I consulted to Merrill Lynch. Merrill Lynch wanted to created a PC-based Home Brokerage system for its brokers and major clients so that, rather than use expensive Quotron terminals, they could use their personal computers to dial into a local node on Net1000. Some processing would be performed on the local Unix box and, where needed, the network would route work back to the mainframe computers in New York.

It all sounded good on paper, but it never came to fruition. Why? AT&T couldn’t get enough companies to sign up for the service. And even a company as well-funded (at least back then) as AT&T could not justify the start-up costs from a business perspective.

So that leads us to wonder how these new technologies, specifically those requiring large intial investments in infrastructure, ever get off the ground.

Well, to find the answer, let’s look at two examples.

The first example is the nationwide telephone system in the United States. It was created by a single monopoly with a excellent built-in profit margin from the start (remember how much you used to pay each month to lease a phone). Also, in the case of rural coverage, it was backed by government funding.

The second example of the development of a complex new technical infrastructure that wasn’t cost justifiable is the Internet. Again, this originated as a government project for the military, therefore, it was supported by the government’s deep pockets and had no need to realize a profit.

Get the picture?

So now let’s go back to wireless.

One thing that the Reagan legacy has left us is the belief that the utimate answer to all economic issues is the free market, which works in most, but not all, cases. In my opinion, there is still room for the government to step in when it supports the greater good of the people. In other words, social programs have gotten a bad rap. Take the interstate highways program for example. This had an incredible long-term positive impact on the U.S. economy, but it never would have been built if left to the free market.

In the case of wireless, the government simply auctions off parts of the spectrum and lets the market take it from there. I believe that the government should intercede in the case of wireless and oversee and fund the development of the initial infrastructure. When that is in place then, and only then, is the right time to deregulate and open it back up to free market forces. Unless that happens (and I’m not holding my breath, mind you) it’s likely that we’ll continue to be subjected to the chaotic state that is wireless communications in the United States.

With all that said, I love wireless.

And maybe, just maybe, the people have to take matters into their own hands. Heck, maybe that grassroots effort to link 802.11b networks has some merit.